Transcript

3.
Budget Highlights 2014-2015 | 3
KEY AMENDMENTS
KEY DIRECT TAX AMENDMENTS
Roll back of APA’s
upto four previous
years on
finalization;
transfer pricing
changes
No deduction for
CSR expenditure
Changes to
disallowance of
expenses for
non withholding of
taxes
No sunset clause for
15% tax on foreign
dividends
Higher holding
period for
unlisted shares
New deduction
for specified
business
No GAAR deferral
(applies from FY
2015-16)

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ADVANCE PRICING AGREEMENT - ROLL BACK
Amendment Implication
Proposed roll-back of
Advance Pricing
Agreement (“APA”)
provisions
• The Finance (No 2) Bill, 2014 [“Finance Bill”] has
proposed ‘roll back’ of Advance Pricing Agreement
(“APA”) provisions
• Prior to this amendment, the APA would have been
applicable to prospectively to the agreed term
which is not exceeding five years
• Now, the regulations provide for the acceptance of
the APA terms for 4 years prior to the initial year in
the agreed APA
• Effectively, on acceptance of APA, the tax payer
can eliminate Transfer pricing litigation for 9 years
(4 pre + 5 post)
Much sought amendment would provide relief to companies and help reduce
litigation in the field of transfer pricing

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Budget Highlights 2014-2015 | 5
ADVANCE PRICING AGREEMENT - ROLL BACK
Amendment Implication
Transfer pricing
proposals
• Range concept for determining ALP, instead of
arithmetic mean approach (mean will be used in
absence of comparables’ data)
• Allowing multiple year data for comparability
analysis instead of single year only
• Transactions between a the assesse and an
unrelated domestic party deemed to be
“international transaction” if there exists pre-
arrangement between overseas related party and
the unrelated domestic party
• Amendments not in the Finance bill – expected to
be moved soon
Transfer pricing law brought on line with best practices

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ADVANCE PRICING AGREEMENT - ROLL BACK
Amendment Implication
Advance Ruling and
dispute resolution
• AAR mechanism to include residents within its
scope, subject to thresholds
• Scope of Settlement Commission to be expanded
to include dispute resolutions, as a one-time
opportunity
• Amendments not in the Finance bill – expected to
be moved soon
Helps dispute resolution

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EXPENSES INCURRED FOR CSR ACTIVITIES
Amendment Implication
Clarity on
deduction of CSR
expenditure
• No deduction under section 37 on CSR expenditure.
CSR expenditure defined as deemed not to incurred
‘for the purpose of business or profession”
• As per the Companies Act, 2013 specified companies
are required to expend 2 percent of their profits towards
CSR activities.
• Non allowance of CSR expenditure to lead to an
additional tax cost
• The other deduction section, ie section 30 to 36 also
require expenditure to be “for the purpose of business
or profession” and therefore the claim may be an issue
• Section 80G deductions should continue to be available
for CSR on fulfillment of 80G conditions
Expenditure incurred for CSR activities not to be allowed as a deduction

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DIVIDENDS RECEIVED FROM FOREIGN
COMPANIES
Amendment Implication
Concessional rate of
tax on dividend
received from foreign
companies
• Sunset clause on concessional rate of 15 percent
on dividends received from foreign companies (>26
percent stake ) done away with
 Earlier provisions had a sunset clause of
March 2014 - This has now been removed
Incentive to Indian Company to repatriate from its foreign associate
companies

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DEDUCTION OF CAPITAL EXPENDITURE
INCURRED FOR SPECIFIED BUSINESS
Amendment Implication
Section 35AD
amended to provide
deduction for capital
expenditure to semi-
conductor wafer
fabrication
manufacturing units
• Semi-conductor wafer fabrication manufacturing
unit termed as “specified business” and extended
an investment based deduction
• The investment in the form of capital expenditure
would be allowed in the year of acquisition
• Acceleration of the deduction claim which would
otherwise be allowed as a deduction through
depreciation claim
Incentive to the semi conductor industry which is capital intensive

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INVESTMENT ALLOWANCE UNDER
SECTION 32AC
Amendment Implication
Section 32AC
amended to
incentivize
investment in
manufacturing sector
by SMEs
• The scope of investment allowance has been
enhanced, by reducing the threshold limits of
procurement of new assets from Rs 100 crores
rupees to Rs 25 crores
• Available for investment up to to FY 2016-17
• Earlier threshold of Rs 100 crores too high for small
and medium enterprises (“SMEs”)
• Additional 15 percent deduction in the year of
acquisition
• New threshold and would augur well for the SME
manufacturers
• Capex on computers would not be eligible since
these are already excluded in section 32AC
Capacity and capital expansion of SMEs encouraged by this amendment

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UNLISTED COMPANY SHARES
Amendment Implication
Section 2(42A)
amended to enhance
the holding period of
shares of unlisted
companies
• Unlisted company shares to satisfy a higher
threshold limit of 36 months to be called a ‘long
term capital asset’
 Earlier the limit was 12 months for a share. (Long
term capital gain after 12 month acquisition subject
to 20 percent tax)
 All share transactions in the unlisted company
would now be subject to 30 percent tax ie short
term capital gain if within 36 months from the date
of acquisition. Also no indexation on short term
capital asset
Impacts group restructuring

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KEY AMENDMENTS TO TDS PROVISIONS
Amendment Implication
WITHHOLDING TAX
PROVISIONS
• Non resident payments: Time available till the filing
of return of income to pay the withholding taxes and
claim payments made to non residents as a
deduction (brought on par with the provision for
resident payments)
• Resident payments: Quantum of disallowance
reduced to 30 percent instead of earlier 100 percent
of expenditure on which withholding of taxes is not
done/paid
• All payments to residents to come within the
purview of disallowance. Salaries were earlier not
subject to disallowance even in case non
withholding of taxes
• Period of limitation: Time limit to pass an order in
case of a TDS default extended to 7 years from the
end of the financial year of credit/payment for all
resident payments; earlier provisions had a 2 year
limit in case TDS returns we filed

14.
Overall
Government
priorities
 Commitment displayed towards introduction of
GST
 Finance Minister has also assured States
Governments that the union government “will be
more than fair in dealing with them”
 However, no timeframe laid down for GST
implementation
 Proposal to setup a High Level Committee for
ascertaining clarity in tax laws and issue appropriate
clarifications within two months
 Various measures towards reducing litigation
Budget Analysis 2014-2015 | 14

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SEZ notification amended
SEZ Notification no 12/ 2013 has been amended as under:
 Time limit for issuance of Form A-2 specified as 15 working days from the
date of submission of Form A-1
 Form A-2 to be effective from the date of verification of Form A-1 by the
Specified Officer of the SEZ, subject to the Form A-1 being submitted to
service tax department within 15 days of its verification. Where Form A-1 is
submitted after 15 days, Form A-2 shall be effective from the date of such
submission
 Where form A-2 is not furnished by the SEZ developer/ unit within 3
months, the service provider would be required to pay service tax
 Reasonable to say even for past period benefit should be available from
date of approval of Form A1
NASSCOM pre-budget recommendation
considered
One of the key issues represented by NASSCOM before CBEC in its
pre-budget memorandum

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Online, mobile advertisements liable to service tax
 Sale of space or time for advertisements across media (except print media)
deleted from negative list and brought under tax net
 New levy extended to advertisements in internet websites, mobile
advertisements, out-of-home media, on film screen in theatres, bill boards,
conveyances, buildings, automated teller machines, tickets, commercial
publications, aerial advertising, etc
 Sale of space for advertisements in print media continue to remain in
negative list of services
 Print media to include books and newspapers as per press and
Registration of Books Act, 1867 (ie does not include commercial
catalogues)
Service Tax on online and mobile advertisements
Effective after the after Finance Bill receives Presidential assent

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Place of provision of service - Intermediary
services
Amendment Implication
Definition of
“intermediary
” amended to
include
intermediary
in goods
• Effective October 1, 2014, commission earned from overseas
suppliers for facilitating sale/ supply of goods shall be liable to
service tax based on the location of intermediary
• Significant impact on Indian subsidiaries involved in
facilitating sale of goods belonging to foreign principals
• Conversely, no tax payable by Indian manufacturers on
consideration paid to overseas agents involved in facilitating
sale of goods outside India
• Interpretative issues in respect of scope of intermediary,
where activity involves host of brand building and marketing
support
• Since “securities‟ are treated as goods for service tax
purposes, impact on brokerages to be analyzed
Debate on applicability of service tax on intermediaries of software
packages laid to rest

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CENVAT credit changes
Amendment Implication
Time limit for availment of
CENVAT credit
• Effective September 1, 2014, service provider
to take credit on inputs and input services
within six months from date of invoice
• In effect, companies are required to make
payment to vendor within 3 months from
invoice date and avail CENVAT credit on
inputs and input services within six months
Re-availment of CENVAT
credit on realization of
export proceeds
• CENVAT credit reversed on account of non-
receipt of export proceeds within the specified
period or extended period can be re-availed, if
the export proceeds are received within one
year from the period so specified or extended
period

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Point of taxation for recipient of service
Amendment Implication
Point of taxation in respect
of services for which service
tax is payable as a recipient
of service amended
• Point of taxation in respect of services for
which service tax is payable as a recipient of
service, will be the payment date or three
months from the date of invoice, whichever is
earlier
• Earlier, the point of taxation for such services
was the date of payment, if paid within six
months from date of the invoice or as per
general rule
• Change effective October 1, 2014

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Pre deposit
 Filing of stay applications done away with – going forward, mandatory
payment of pre-deposit at the time of filing appeals required as below:
o 7.5% of the duty demanded or penalty imposed or both for filing of
appeal before the Commissioner(Appeal) or the Tribunal at the first
stage
o 10% of the duty demanded or penalty imposed or both for filing second
stage appeal before the Tribunal
 Amount of pre-deposit payable subject to a ceiling of Rs 10 crore
 Above provisions shall not apply to appeals / stay applications filed up to
the date of Finance Bill receiving Presidential assent
Mandatory pre-deposit for filing appeal

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Exemption from cess on CVD withdrawn
 Exemption of cess on CVD pertaining to computers, laptops, printers,
keyboards, monitors, packaged software and other specified products
withdrawn
 Effective rate of duty on import increased from 10% to 10.3%
 Amendment brings the rate of duty on domestic manufacture and imports
on par, at 10.3%
Customs duty
Deemed manufacture provisions to apply to software
 Activities such as labelling or re-labelling or declaration or alteration of
retail sale price deemed to be manufacture with respect to package or
canned software
 Companies to obtain excise registration and follow multiple procedural
compliances as mandated

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Impetus to domestic IT manufacturers
 SAD exempted on all inputs / components for use in manufacture of
personal computers (laptops/ desktops) and tablet computers
 Exemption subject to compliance of Customs (Import of Goods at
Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996
 Significant relief to manufacturers as this resolves the issue of an inverted
duty structure that has been plaguing the industry
 BCD at 10% imposed on specific non-ITA bound telecommunication
products – inputs and components for manufacture of these products,
continue to be exempt
Customs duty

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